1. What are main tenets of the modern classical school and how do they differ from those of the traditional classical school?
Discuss critically the contributions of the modern classical school to our understanding of the role and limitations of monetary and ?scal policies for stabilization, and compare these with those of the neoclassical model.
2. Discuss the empirical validity of the implications of the modern classical model for
(i) the long run, (ii) the short run.
3. What is the empirical assessment by Lucas of the importance of short-run ?uctuations in unemployment and output due to errors in expectations? Discuss other possible reasons for such ?uctuations.
4. How do (i) real business cycle theory, (ii) Friedman-Lucas supply analysis, explain ?uc- tuations in unemployment over the business cycle? What is the impact on unemployment of changes in aggregate demand in these models? How would you test the validity of the implications of these theories?